slides for my talk on creating an investment thesis (April 2016)

There is one undeniable fact that anchors an investment thesis in HCP: The elderly population in the U.S. is growing fast. Overall population growth coupled with increasing life expectancy means that the elderly population of the U.S. is expected to grow from 43.1 million in 2012 is to 83.7 million by 2050. With increased age also comes increased demand on healthcare services and the infrastructure behind it.

So what exactly is an investment thesis, and how do you go about developing a good one?

Look at the simple investment thesis that Berkshire Partners developed when it invested in Crown Castle International Corporation in 1994. The founders of Crown Castle had hit upon a lucrative business model: They would purchase a cellular telephone transmission tower from one telecommunications company and then lease space on it to other service providers in the area. Lacking the cash for expansion, however, the founders were stuck in a single metropolitan market, Houston. Berkshire saw that a straightforward investment thesis—replicating the business model in other major markets—could significantly increase the value of the business, so it immediately supplied Crown Castle with an initial 65 million investment to buy towers in other major metropolitan markets. To date, Crown Castle has successfully rolled out this model across the United States, the United Kingdom, and Australia, generating a tenfold return on investment for Berkshire.


How to Create Your Three-Minute Investment Thesis

So how do you formulate a good, sound “smart money” investment thesis?

“The central tenet of our investment thesis and $80 price target is the belief that Microsoft’s fast-growing Cloud businesses will lead to accelerated revenue and gross profit growth through FY19. We model a Cloud revenue CAGR of 33% through FY19 (which we define as revenue from Azure, Office 365 (commercial + consumer), LinkedIn and a portion of the Dynamics franchise) with Cloud going from 11.5% to 30.6% of Total Revenue while at the same time Cloud Revenue gross margins expand from 42% to 60%.”